MSE News: Risky mortgages to face new crackdown, George Osborne says

HAMISH_MCTAVISH

Graham_Devon wrote: »

No one is suggesting its the answer to the shortage of housing. .

And as it's the shortage of housing causing prices to be high, then it can't be the answer to that either.

Norway has form in this matter..... I'll see if I can find the relevant article.

Edit: Here are some key excerpts.

First the Financial Supervision Authority, a regulator, issued guidelines to banks that they should require borrowers to put down at least a ten per cent deposit.

It raised this a couple of years later to 15%. This dampened down demand for mortgages as people found it harder to save up a lump sum.

Secondly, the finance ministry required banks to fund more of their mortgage lending by issuing shares instead of borrowing the money.

This also helped cool the housing market because it made mortgage lending less appealing to banks: it limited the supply of mortgages.

Both measures combined certainly seemed to take the wind out of sales and after six years of prices rising between seven and ten percent a year, they started falling about the middle 2013.

So far so straightforward, but that’s not the whole story.

When the taps were turned off and young people, especially, found it very difficult or even impossible to scrape together a large deposit, many of them rounded on the regulator.

Kristin Myrvang Gjorv, a 28-year-old graduate who holds down three jobs quickly realised her dream of buying a flat would remain just a dream for many years.

“I felt angry,” she told me in the kitchen of her rented flat. The head of the FSA admitted he had come in for a roasting in the press.

“It proved to be rather controversial,” said Morten Baltzersen. Owning your own home is even more of an obsession in Norway than it is in the UK.

Jon Gunnar Pedersen, finance minister, told me why: “You have to have a good house, simply to survive the weather conditions we have here. Eventually every Norwegian expects to own their own home.”

His centre-right party was elected partly on the promise of easing the mortgage guidelines.

They want banks to look at an individual’s earning potential, not what they can afford now – and wrote a carefully vague open letter to Mr Baltzersen to this effect, which many people I spoke to in Oslo think undermined his position.

As one bank broke ranks, and then another, they are all becoming less stringent in their lending and house prices in Norway are rising again. The whole policy may be unwound.

So as officials at the Bank of England settle into a day of deliberations next week on how to tackle the housing market, what can they learn from Norway’s experience?

They can take comfort from the evidence that unusual measures like requiring high deposits from borrowers combined with higher capital from lenders do seem to calm property markets.

But they should beware of straying into the political fray.

Imposing restrictions on mortgages means Bank officials are deciding who has access to buying their own home, a distributional decision which is normally left to politicians. They may be taken aback by a hostile response.

Likewise, politicians should be wary of intruding on the Bank’s decisions for fear of undermining the policy.

The Chancellor made clear yesterday that he has given the Bank complete independence to make its decisions.

Yet talk is cheap and he may find the temptation to comment irresistible if housing becomes contentious.

However there are two further points which became clear in Norway: the fundamental problem is not to do with mortgages but is one of supply of housing.

There simply isn’t enough to accommodate a growing population - a very familiar problem here in the UK.

Finally, as similar as the story may be in Norway, there are many differences which mean we can’t be sure these measures will work in the UK.

Britain is much larger, it taxes property differently, we have a different immigration policy, different rates of home ownership, different aspirations.

We can observe what has happened in Norway (and Hong Kong, South Korea and others) but ultimately the Bank may be about to start what is a very impressive and very important experiment.

We’ll hear the result of their deliberations on 26th June.

http://www.itv.com/news/2014-06-13/what-can-we-learn-from-norways-housing-market-controls/

So Norway has tried lending restrictions similar to the ones being proposed here, which prevented loads of young people from buying houses, and became so unpopular it contributed to government change and is now being abandoned.

And the lesson was learned that a housing shortage cannot be tackled through lending restrictions.

Seems to be an awfully complicated way to avoid building more houses....

mobfant

HAMISH_MCTAVISH wrote: »

That fear can only really be addressed by more houses being built.

Until then, many people WILL be excluded completely.

And the only way to ensure you're not one of them is to be the highest bidder for one of the limited stock available.

Yes.

As you'd expect after 50%+ price rises in a few short years.

Enough people have been excluded by those prices rises that supply and effective demand are coming back into equilibrium, temporarily.

It won't last though.... Unless we build more houses.

They never do.

Prices don't rise in a straight line and rising markets often pause for breath on the way up.

But nothing will change meaningfully until we build a few million more houses.

If you don't have the money or don't think a house is worth a certain price, you won't buy it. So while houses will remain unaffordable for many until more houses are built, prices won't continue rising as much as they have been. Simple as.

This argument has become circular. Let's see where the evidence is in 6-12 months; one of us will be right.

J_i_m

Well the market is complicated, so the chances are both sides of the argument will have elements of 'I told you so'.

It's why I think the notion of capping all mortgages at x3.5 is too simplistic.

Everybody's affordability status needs to assessed individually. I believe that if someone's finances show that they could comfortably repay a x5 mortgage and still live within their means then they ought to be able to secure a x5 mortgage.

Everyone's circumstances are different, but in some ways I don't see why some people should be excluded simply because some others need protecting from themselves.

Thankfully, though these increased powers to the BOE don't automatically mean they'll use them to blanket cap mortgages.

AndyGuil

mobfant wrote: »

If you don't have the money or don't think a house is worth a certain price, you won't buy it. So while houses will remain unaffordable for many until more houses are built, prices won't continue rising as much as they have been. Simple as.

This argument has become circular. Let's see where the evidence is in 6-12 months; one of us will be right.

Why wait to just look back 6-12 months? Why not look back now? Let's go crazy and look back 30-40 years to now?

mobfant

AndyGuil wrote: »

Why wait to just look back 6-12 months? Why not look back now? Let's go crazy and look back 30-40 years to now?

Ok let's do that too. I might have forgotten by then but I'll set a reminder in my calendar (will we still have calendars in 2044?)

AndyGuil

mobfant wrote: »

Ok let's do that too. I might have forgotten by then but I'll set a reminder in my calendar (will we still have calendars in 2044?)

Or we could look from now back 30-40 years? I.e. 60s/70s to 2014...

mobfant

AndyGuil wrote: »

Or we could look from now back 30-40 years? I.e. 60s/70s to 2014...

If we were having a debate about the last 30-40 years then we could. But we're not.

AndyGuil

mobfant wrote: »

If we were having a debate about the last 30-40 years then we could. But we're not.

It has strong implications for the market today and gives it the trend.

cells

it would make sense to have it in steps eg

put 10% down and the max you can borrow is 3x.
put 20% down and its 4x
put 30% down and its 5x
put 40% down and its 6x

6x income is risky for the borrower but at 40% down not risky for society/bank